What is an LTIP and is it an appropriate mechanism for Which
A Long Term Incentive Plan is meant to either retain employees who might go to a rival, and to reward executives by awarding shares in the company which they can subequently realise. Obviously in the share option does not apply to Which? staff so the payment would be in cash. An implicit notion is that the salaries are inadequate, and or, there is untapped reserves of executive energy that will be released by offering the potential of earning significant extra salary. Details of the Which? scheme which apparently passed after much discussion and long debate as revealed by Deputy Chairman Paul Preston. The minutes are a little light on this aspect. "Long Term Incentive Plan During the year, a Long Term Incentive Plan (LTIP) has been implemented to ensure that senior employees with commercial responsiblities are incentivised appropriately to deliver transformational commercial growth and long term success for the organisation, enabling continued and growing investment of resources in achieving its charitable mission. '' ''Awards, which are based solely on the commercial component of each individual’s salary, are made only if exceptional growth is achieved over a three year period in the value of the commercial businesses, as determined by independent valuation experts. Individuals will receive nothing for growth of less than 22% over three years, ‘target’ payout for between this level and 33% growth, and maximum payout for growth of 33% and above. The reward for ‘target’ payout is 50% of salary for each year, and for maximum payout is 100% of salary for each year, with intermediate payments for growth between 22% and 33%. External advisers have confirmed that these levels and the terms of the scheme are broadly in line with similar schemes for similar commercial roles. At the year end, there were four employees included within the scheme" Accounts 2012/2013 page 9 . On page 17 [ lightly edited for clarity] we can see why the LTIP could cost £2.54M and if they get only the first level of achievement the cost will be £1.27M "£160,001-£170,000 2 (2011/12 : 1) employees '£170,001-£180,000 2* (2011/12 : -) employees £180,001-£190,000 1 (2011/12 : 1) employees '''£210,001-£220,000 1* (2011/12 : -) employees £220,001-£230,000 - (2011/12 : 1) employees £250,001-£260,000 1* (2011/12 : -) employees £280,001-£290,000 - (2011/12 : 1) employees £310,001-£320,000 1* (2011/12 : -) employees £320,001-£330,000 - (2011/12 : 1) employees * Employee included in the Long Term Incentive Plan scheme. Note in the £170,001-£180,000 banding, only one employee is in the scheme. Of the individuals earning over £100,000, only one was primarily employed to perform charitable activity. This individual was paid £124,000. In the above salary banding the highest paid employee was the Group Chief Executive. He was paid £49,500 for running the charity, which is based on a full-time equivalent salary of £165,000. As a result of the significant commercial activities of the Group, a number of our higher paid staff dedicate significant amounts of time to the Group’s commercial activities which are performed by the subsidiary companies, including Which? Limited." UK law Originally UK company law set a default rule that the remuneration of directors was to be set, binding, by the company's general meeting, under Table A, article 54, attached to the Companies Act 1862.[5] Over time more and more companies gave the right to directors, which is the position found in the Model Articles for companies today, that remuneration of the directors shall be determined by the directors. The United Kingdom was the forerunner in mandating that shareholders be allowed a ''non-binding, or advisory vote on pay. In the UK, section 439 of the Companies Act 2006 mandates a vote on director pay at the yearly accounts meeting. Directors are expected to have disclosed their remuneration package in a "Remuneration Report" (section 420). Failure to do this leads to fines. As the Consumers'Association Limited is not a publicly quoted company this requirement does not apply however this could be a guide to an amendment to our Articles. Amendments to the Articles happen more frequently than one might assume. At the June 2012 meeting we had the reduction in elected Trustee . At the November 2012 AGM the previous requirement that a Director Trustee be restricted to no more than 1% shareholding in any Company that the charity trades with was ditched and replaced with the more generous one of 5%. This matter arose as the Chairman Paddy Barwise had unknowingly been in excess of the 1% limit in respect of his shareholding in the Company that handles the majority of surveys commissioned by Which?. In my opinion this is an unfortunate step as as several Trustees could all hold near 5% shares in companies doing business with \which?. I do not believe that the original version restricting shareholdings to 1% was ill-considered or wrong.